UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2000
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission File No. 0-29015
SAF-T-HAMMER CORPORATION
(Name of Small Business Issuer in Its Charter)
NEVADA 87-0543688
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
14500 N. Northsight, Suite 221
Scottsdale, Arizona 85260
(Address of Principal Executive Offices) (Zip Code)
(480) 949-9700
(Issuer's Telephone Number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(None)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $0.001
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports); and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $13,367
State the aggregate market value of voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked prices of such common equity, as
of a specified date within the past 60 days. (See definition of affiliate in
rule 12b-2 of the Exchange Act.) $13,131,163 as of March 15, 2001
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. 17,006,163 as of
March 15, 2001
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the form 10-KSB (e.g., Part I, Part II, etc. )
into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
The listed documents should be clearly described for identification purposes
(e.g., annual report to security holders for fiscal year ended December 24,
1990).
None.
Transitional Small Business Disclosure Format (check one):
Yes ______ No___X___
1
TABLE OF CONTENTS
PART I
Item 1 Description of Business.
Item 2 Description of Property.
Item 3 Legal Proceedings.
Item 4 Submission of Matters to a Vote of Security Holders.
PART II
Item 5 Market for Common Equity and Related Stockholder Matters.
Item 6 Management's Discussion and Analysis.
Item 7 Financial Statements.
Item 8 Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
Item 10 Executive Compensation.
Item 11 Security Ownership of Certain Beneficial Owners and Management.
Item 12 Certain Relationships and Related Transactions.
Item 13 Exhibits and Reports on Form 8-K.
2
INTRODUCTORY NOTE
This Annual Report on Form 10-KSB may be deemed to contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Company intends that
such forward-looking statements be subject to the safe harbors created by such
statutes. The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. Accordingly, to
the extent that this Annual Report contains forward-looking statements regarding
the financial condition, operating results, business prospects or any other
aspect of the Company, please be advised that the Company's actual financial
condition, operating results and business performance may differ materially from
that projected or estimated by the Company in forward-looking statements. The
differences may be caused by a variety of factors, including but not limited to
adverse economic conditions, intense competition, including intensification of
price competition and entry of new competitors and products, adverse federal,
state and local government regulation, inadequate capital, unexpected costs and
operating deficits, increases in general and administrative costs, lower sales
and revenues than forecast, loss of customers, customer returns of products sold
to them by the Company, disadvantageous currency exchange rates, termination of
contracts, loss of suppliers, technological obsolescence of the Company's
products, technical problems with the Company's products, price increases for
supplies and components, inability to raise prices, failure to obtain new
customers, litigation and administrative proceedings involving the Company, the
possible acquisition of new businesses that result in operating losses or that
do not perform as anticipated, resulting in unanticipated losses, the possible
fluctuation and volatility of the Company's operating results, financial
condition and stock price, losses incurred in litigating and settling cases,
dilution in the Company's ownership of its business, adverse publicity and news
coverage, inability to carry out marketing and sales plans, loss or retirement
of key executives, changes in interest rates, inflationary factors, and other
specific risks that may be alluded to in this Annual Report or in other reports
issued by the Company. In addition, the business and operations of the Company
are subject to substantial risks which increase the uncertainty inherent in the
forward-looking statements. In light of the significant uncertainties inherent
in the forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be achieved.
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
BACKGROUND OF THE COMPANY
Saf-T-Hammer Corp. ("Saf-T-Hammer" or the "Company"), is a Nevada corporation
headquartered in Scottsdale, Arizona. The Company was initially formed in June
1991. The Company's principal operations center around two unique products in
development and the patent pending rights to two childproof gun safety devices
known as the "Saf-T-Hammer" and "Saf-T-Trigger". Both devices are easily
removable, external devices that enable safe storage of weapons, including
loaded firearms. A gun owner can easily engage either the Saf-T-Hammer or
Saf-T-Trigger in approximately one second, thereby relieving the fear of death
or injury to a child or other person due to an accidental discharge of the
weapon. Upon the gun owner's return, he or she can easily disengage either
device in about a second, as well. Thus, the Saf-T-Hammer and Saf-T-Trigger
allows both safety and protection while the weapon remains loaded. The unique
and salient features of the Saf-T-Hammer and Saf-T-Trigger are as follows:
- Saf-T-Hammer & Saf-T-Trigger, unlike conventional trigger locks, can
be used with a loaded weapon;
- Saf-T-Hammer & Saf-T-Trigger cannot be fired when in safety mode;
- Saf-T-Hammer & Saf-T-Trigger can be removed and re-armed in less than
a second;
- Saf-T-Hammer requires no keys;
- Saf-T-Hammer & Saf-T-Trigger requires no codes to remember;
- Saf-T-Hammer & Saf-T-Trigger requires no appreciable level of
mechanical ability to operate;
- Saf-T-Hammer & Saf-T-Trigger cannot be broken, twisted or cut-off;
- Saf-T-Hammer & Saf-T-Trigger are cheaper than other similar gun
safety devices to produce; and
- Saf-T-Hammer & Saf-T-Trigger are currently patent pending.
As a direct result of the Company's emphasis upon internal development, it has
fostered two gun safety products, Saf-T-Hammer and Saf-T-Trigger that will be
marketed and distributed through standard firearms industry distribution
channels, catalogue outlets and direct sales.
THE ADDRESSED MARKET
Three target markets exist for Saf-T-Hammer & Saf-T-Trigger:
1. Current gun owners who store their weapons in residences where
children reside or visit;
2. Future gun owners who will purchase a weapon equipped with
Saf-T-Hammer or Saf-T-Trigger, or replace their current weapon with a gun, which
has been equipped with Saf-T-Hammer or Saf-T-Trigger; and
3. Gun Dealers and Gunsmiths, (technically known as Federal Firearms
Licensees or FFL's) who will act as the distributors of Saf-T-Hammer and
Saf-T-Trigger, and as the point of contact for gun owners wanting to be fitted
with Saf-T-Hammer or Saf-T-Trigger technology. Currently, in the United States,
there are 93,000 FFL's.
3
The company acknowledges that specialized target marketing strategies will
be required for each of these three markets and has addressed those needs with a
comprehensive marketing plan.
NEW GUN SALES
Saf-T-Hammer plans to license the rights of its product to the major gun
manufacturers for a royalty payment for each Saf-T-Hammer or Saf-T-Trigger. Gun
manufacturers can produce both of these products for a few dollars apiece after
minor changes are made to their existing manufacturing process.
AFTER-MARKET CONVERSIONS
Saf-T-Hammer intends to establish licensed Saf-T-Hammer dealers (existing
gunsmiths) to convert currently owned guns with Saf-T-Hammers and
Saf-T-Triggers. It is anticipated that dealers will purchase the products from
the Company, and will charge the customer for the labor involved in installing a
Saf-T-Hammer or Saf-T-Trigger. The dealers can install the devices in
approximately 10 minutes. The Company anticipates that the total cost of the
conversion to the consumer will be less than $50.00.
BUSINESS STRATEGY
Current and Future Gun Owners
Saf-T-Hammer and Saf-T-Trigger can be marketed successfully to both current
and future gun owners through both conventional techniques, and complimentary
creative strategies. Conventional marketing strategies will include the venues
currently utilized by all gun manufacturers, including magazines, gun shows,
target mailings, etc. Sales data from the major gun manufacturers suggests that
conventional marketing techniques are successful. Additionally, Saf-T-Hammer
can be promoted through unconventional avenues. Some of these include:
- - Development of relationships with safety organizations such as the
National Safety Council, Center to Prevent Handgun Violence, Mothers Against
Violence in America (MAVIA), the NRA's Eddie Eagle Gun Safety Program, and
others which are spreading across the United States. In some instances,
Saf-T-Hammer should earn the endorsement of safety organizations based on pure
product merit. In other circumstances, a "team approach" can be utilized to
benefit both the non-profit entity and Saf-T-Hammer, through the use of cash
incentive donations to these organizations for sales attributed to the
organizations' efforts.
- - By virtue of the novel and unprecedented safety technology it represents,
Saf-T-Hammer can make good utilization of a major public relations "kick-off"
campaign. The ease and speed with which the technology can be implemented,
coupled with the complete trustworthiness of its safety features makes
Saf-T-Hammer a truly newsworthy invention. Because Saf-T-Hammer's products are
strictly safety devices, they are not burdened by the politics surrounding gun
ownership and gun rights, and can be widely embraced as a solution to unintended
gun injuries and death. The government scrutiny and public focus on gun danger
makes the present a perfect time to launch Saf-T-Hammer into the marketplace.
Gun Dealers and Gunsmiths Performing Conversions
4
Dealers and gunsmiths ("FFL's") will also require specialized marketing.
To successfully foster a mass desire to sell Saf-T-Hammer-equipped firearms will
depend on communicating the following to FFL's:
- - The profit potential of selling Saf-T-Hammer equipped guns;
- - The ease of the conversion process, and the telephone and web-site
availability of on-going technical support;
- - The ease of the use of the Saf-T-Hammer and Saf-T-Trigger, and the ease
with which it may be demonstrated to the gun owner, as well as the availability
of point-of-purchase promotional and training material to be made available to
gun owners at the dealership.
COMPETITION
The major competitors of the Company are the manufacturers of trigger
locks. Currently, most of these devices require that the guns be unloaded.
Saf-T-Hammer is designed to be used on either loaded or un-loaded weapons. We
not only offer a solution to existing gun owners, but to new gun owners as well.
FIREARMS AVAILABLE ELIGIBLE FOR CONVERSION
Nearly all of the 230 million firearms in the U.S. can be fitted with
either a Saf-T-Trigger or Saf-T-Hammer, and in many cases, both.
SUMMARY OF MANUFACTURING AND SERVICE DIVISIONS
All three divisions, as represented hereinafter, serve as the
manufacturing, service and core business of the Company. The following summary
describes their function and operations in brief detail:
- - PRODUCTION. This division is dedicated to the research, development and
manufacturing of products and services employed in the safety product industry
at affordable prices. Saf-T-Hammer Corporation ("Saf-T-Hammer") plans to
manufacture and introduce a full line of safety products that will provide
families with simple, safe solutions to the dangers that exist in and out of the
home. During fiscal 2000, the Company began the production and distribution of
its firearms related safety devices. The Company contracted with Zoltrix
International, a company based in Hong Kong for the initial manufacturing of its
products and has begun receiving its first shipment of manufactured products
towards the end of the fourth quarter. The Company has completed the testing of
the first production models to ensure that they were manufactured according to
the Company's specifications and has shipped samples to various law enforcement
agencies, marketing representatives, and firearm manufacturers who have
expressed interest in the Company's product for independent testing. The
Company began retail and wholesale sales of its products in late 2000.
- - MARKETING. Saf-T-Hammer Corporation will utilize traditional and
non-traditional venues to introduce and promote the Saf-T-Hammer and other
products offered by the Company. Traditional venues will include utilization of
the well-established firearms industry marketing and distribution networks to
sell its products. During fiscal 2000, the Company entered into agreements
with approximately seventy sales representatives on a commission basis. These
sales agents currently sell other firearms related products from companies such
as Browning, Winchester, Bushnell, Zebco, and others. The Company's sales
strategy is to market its products on a national basis to firearm dealers,
gunsmiths, law enforcement agencies, and end users. The Company intends to
market its products through media campaigns, including magazines, radio and
television. In furtherance of this, the Company began print and radio
advertising in major firearm and law enforcement magazines and sponsored the
syndicated radio talk show "Gun Talk."
5
ITEM 2. DESCRIPTION OF PROPERTY
The Company entered into a three year lease for its office facility from
unrelated parties effective April 1, 2000. Monthly rent is payable on the first
day of the month in the amount of $5,622. Pursuant to this agreement, the
Company is not responsible for any other local or state taxes, however, is
required to have a minimum general liability insurance of $1,000,000.
ITEM 3. LEGAL PROCEEDINGS
The Company may from time to time be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations of discrimination, or
breach of contract actions incidental to the operation of its business. The
Company is not currently involved in any such litigation which it believes could
have a materially adverse effect on its reported financial condition or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 2000.
6
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Company's common stock is presently traded on the OTC Bulletin Board
operated by the NASD under the symbol SAFH. The following table sets forth the
high and low closing prices for shares of the Company's common stock for the
periods noted, as reported by the National Daily Quotation Service and the
Over-The-Counter Bulletin Board. Quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.
CLOSING PRICES
YEAR PERIOD HIGH LOW
1999 First quarter $1.88 $0.88
Second quarter $2.94 $0.88
Third quarter $1.81 $1.00
Fourth quarter $1.31 $0.88
2000 First quarter $2.34 $0.75
Second quarter $2.00 $0.81
Third quarter $1.25 $0.50
Fourth quarter $0.50 $0.10
On March 30, 2001, the last sales price per share of the Company's common
stock, as reported by the NASDAQ Bulletin Board, was $0.8750
NUMBER OF SHAREHOLDERS
The number of beneficial holders of record of the Common Stock of the
Company as of the close of business on February 28, 2001 was approximately 266.
Many of the shares of the Company's Common Stock are held in a "street name" and
consequently reflect numerous additional beneficial owners.
DIVIDEND POLICY
To date, the Company has declared no cash dividends on its Common Stock,
and does not expect to pay cash dividends in the next term. The Company intends
to retain future earnings, if any, to provide funds for operation of its
business.
7
RECENT SALES OF UNREGISTERED SECURITIES
In March 2000, the Company issued convertible debentures with a face value
of $1,000,000 under Rule 504 of Regulation D. The debentures are
convertible into common stock at the discretion of the holder at a 25%
discount. As of December 31, 2000, $841,000 of the Debentures have been
converted into 2,651,658 shares of common stock at an average price of $0.317
per share. During January 2001, the remaining $159,000 of the Debentures have
been converted into 1,799,029 shares of common stock at an average price of
$0.088 per share.
In May 2000, the Company conducted a Private Placement of $1,250,000 of its
restricted Common Stock. The Company sold a total of 773,037 shares
resulting in net proceeds of $667,525. The shares were offered without general
solicitation or advertisement pursuant to Rule 506 of Regulation D of the
Securities Act of 1933.
In July 2000, the Company issued 7,500 shares of its "restricted" Common Stock
to its legal counsel, an accredited investor, in exchange for legal services
rendered. The issuance was an isolated transaction not involving a public
offering without general solicitation or advertisement pursuant to Section 4(2)
of the Securities Act of 1933.
During November 2000, the Company sold 1,600,000 shares of its "restricted"
Common Stock to two accredited individuals, resulting in net proceeds of
$200,000. The issuance was an isolated transaction not involving a public
offering without general solicitation or advertisement pursuant to Section 4(2)
of the Securities Act of 1933.
On December 30, 2000, the Company issued to Robert Scott, the Company's
President, 300,000 shares of its restricted Common Stock as a bonus for services
rendered. The issuance was an isolated transaction not involving a public
offering without general solicitation or advertisement pursuant to Section 4(2)
of the Securities Act of 1933.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion contains certain forward-looking statements that are
subject to business and economic risks and uncertainties, and the Company's
actual results could differ materially from those forward-looking statements.
The following discussion regarding the financial statements of the Company
should be read in conjunction with the financial statements and notes thereto.
8
GENERAL OVERVIEW
The Company's principal line of business involves the manufacturing and sale of
firearms related safety devices. These products are distributed throughout the
United States. The Company's revenues are derived from sales to customers for
the purchase of the Company's products and are recorded as revenue when product
is shipped. All sales and revenues are recorded on the accrual basis, where
revenues are recorded when earned/shipped to its customers. There are no advance
fee or significant volume discount arrangements.
During fiscal 2000, the Company began the production and distribution of its
firearms related safety devices. The Company contracted with Zoltrix
International, a company based in Hong Kong for the initial manufacturing of its
products and has begun receiving its first shipment of manufactured products
towards the end of the fourth quarter. The Company has completed the testing of
the first production models to ensure that they were manufactured according to
the Company's specifications and has shipped samples to various law enforcement
agencies, marketing representatives, and firearm manufacturers who have
expressed interest in the Company's product for independent testing. The
Company began retail and wholesale sales of its products in late 2000. In
furtherance of this, the Company began print and radio advertising in major
firearm and law enforcement magazines and sponsored the syndicated radio talk
show "Gun Talk."
Additionally, during fiscal 2000, the Company entered into agreements with
approximately seventy sales representatives on a commission basis. These sales
agents currently sell other firearms related products from companies such as
Browning, Winchester, Bushnell, Zebco, and others. The Company's sales strategy
is to market its products on a national basis to firearm dealers, gunsmiths, law
enforcement agencies, and end users. The Company intends to market its products
through media campaigns, including magazines, radio and television.
Cost of sales includes the product cost and freight-in. Selling, general and
administrative expenses consist of the cost of research and development of new
or enhanced existing products, corporate expenses and all administrative
personnel and expenses to support the Company's operations and growth.
RESULTS OF OPERATIONS OF THE COMPANY
FISCAL YEAR ENDED DECEMBER 31, 2000 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1999.
REVENUES - Revenues totaled $13,367 and $0 for the fiscal year ended December
31, 2000 and December 31, 1999, respectively. Towards the end of the fiscal
year ended December 31, 2000, the Company began the production and sale of its
firearms related safety products.
COST OF SALES - Cost of sales totaled $5,347 and $0 for the fiscal year ended
December 31, 2000 and December 31, 1999, respectively. As a percentage of net
revenues, cost of sales was 40% and 0%, respectively, resulting in a gross
profits of 60% and 0% for the fiscal years ended December 31, 2000 and 1999,
respectively.
9
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative ("SG&A") expenses totaled $2,550,090 and $1,243,040, for the
fiscal years ended December 31, 2000 and 1999, respectively. During 2000,
Selling, general and administrative expenses included payroll and related
expenses of $622,020, marketing and advertising expenses of $400,740, regulatory
filings and investor relations of $91,442, professional fees of $95,468,
non-cash stock based compensation of $412,950, interest of $329,855, research
and development costs of $195,109, and general operating costs of $402,506.
SG&A increased by $1,307,050 during 2000 as compared to 1999 primarily due to
increased payroll and related costs due to increase in employees, amortization
of debt discount as interest expense arising from Debentures sold through a
private placement, increased research and development costs to perfect its
products, increased efforts in advertising in magazines and radio shows to
promote its products and issuance of stock in exchange for general consulting
services.
NET LOSS - Net loss increased to $2,542,070 during 2000 as compared to
$1,243,040 during 1999 due to increased SG&A expenses.
NET LOSS PER SHARE - Net loss per share increased to $0.23 per share as compared
to $0.15 per share.
ASSETS AND LIABILITIES - Assets increased $520,383 from $22,212 as of December
31, 1999 to $542,595 as of December 31, 2000. The increase is primarily
attributable to an increase in cash from debt and equity securities sold and
goodwill arising from the acquisition of Lost Coast Ventures, Inc. During March
2000, the Company entered into a Stock Exchange Agreement with MRC Legal
Services LLC to acquire 800,000 shares (approximately 80%) of Lost Coast
Ventures, Inc., a Delaware Corporation, in exchange for 200,000 shares of its
restricted common stock. Pursuant to this Stock Exchange Agreement, immediately
following the close of this Agreement, the shareholders caused Lost Coast
Ventures, Inc. to complete a reverse stock split and acquire the remaining 20%
of outstanding shares of Lost Coast Ventures, Inc. for cash. In relation to the
Stock Exchange Agreement with MRC Legal Services LLC, the Company also entered
into a consulting agreement to negotiate and close the Agreement with certain
individuals. Pursuant to this Agreement, the Company paid $100,000 cash and
issue 250,000 shares of its common stock immediately upon the execution of the
stock exchange with the Lost Coast shareholders..
Liabilities increased from $374,041 as of December 31, 1999 to $859,239 as of
December 31, 2000. This increase is primarily attributable to increases in
accounts payable and accrued expenses of $87,074, sale of convertible Debentures
with a face value of $1,000,000 (all of which was converted as of February 28,
2001), and additional operating capital loans obtained from the loans payable to
a related parties.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2000 the Company had $13,367 in revenues and $542,595 in
total assets. The Company incurred a net loss of $2,542,070 during the fiscal
year ended December 31, 2000 as compared to $1,243,040 for the fiscal year ended
December 31, 1999. On March 28, 2000, the Company issued 3% Convertible
Debentures with a face amount of $1,000,000, resulting in net proceeds of
$950,000. Pursuant to the terms of the Debentures, the Debentures are
convertible into common stock at the discretion of the holder at a 25% discount.
As of February 28, 2001, all the Debentures including $9,875 in interest had
been converted into 4,450,687 shares of common stock at an average price of
$0.22 per share.
In May 2000, the Company initiated a Private Placement of $1,250,000 of its
restricted Common Stock. As a result of the Private Placement, the Company sold
a total of 773,037 shares resulting in net proceeds of $667,525. Subsequently,
the Private Placement was been terminated.
In December 2000, the Company sold 1,600,000 shares of its "restricted" Common
Stock to two accredited individuals. The sale resulted in net proceeds of
$200,000.
The Company anticipates that it has sufficient working capital through the end
of March 2001. The Company intends to raise additional working capital through
either debt or equity financing. There can be no assurances that the Company
will be successful in raising additional funds. Failure to raise additional
funds will have a material adverse effect on the Company's results of
operations.
Additionally, a slower than expected rate of acceptance of the Company's planned
products, when available to the public, or lower than expected revenues
generated from the Company's products, would materially adversely affect the
Company's liquidity. The Company would need additional capital sooner than
anticipated. The Company has no commitments for additional financing, and there
can be no assurances that any such additional financing would be available in a
timely manner or, if available, would be on terms acceptable to the Company.
Furthermore, any additional equity financing could be dilutive to our
then-existing shareholders and any debt financing could involve restrictive
covenants with respect to future capital raising activities and other financial
and operational matters.
10
CAPITAL EXPENDITURES
The Company's anticipated capital expenditures for the fiscal year ended
December 31, 2001 is expected to consist of development and manufacturing costs
for the Company's proposed products. The Company expects to expend
approximately $500,000 towards additional inventory and samples of its products,
$500,000 in marketing materials, $200,000 in print advertising through fiscal
year 2001 in the development and initial production of its products. Currently,
the Company has insufficient funds for its planned capital expenditures and will
need to raise additional funds either through additional debt or equity
financing. Failure to raise additional funds will adversely affect the Company's
plan of operations.
INFLATION
Management believes that inflation has not had a material effect on the
Company's results of operations.
EMPLOYMENT
As of February 28, 2001, the Company had 5 full time employees.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements and supplementary financial
information which are required to be filed under this item are presented under
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 10-KSB in
this document, and are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements between Stonefield Josephson, Inc.,
Certified Public Accountants, and Management of the type required to be reported
under this Item 8 since the date of their engagement.
11
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
MANAGEMENT
The following table sets forth the names and ages of the current directors
and executive officers of the Company. Our executive officers are elected
annually by the Board of Directors. Our directors serve one year terms until
their successors are elected. The executive officers serve terms of one year or
until their death, resignation or removal by the Board of Directors. There are
no family relationships between any of the directors and executive officers
except that Sherry Norren is Mitch Saltz' wife. In addition, there was no
arrangement or understanding between any executive officer and any other person
pursuant to which any person was selected as an executive officer.
Our directors and executive officers are as follows:
Name Age Positions
- ---- --- ---------
Mitchell A. Saltz 48 Chief Executive Officer, Treasurer and
Chairman of the Board of Directors
Robert L. Scott 54 President and Director
Sherry Noreen 49 Secretary and Director
MITCHELL A. SALTZ - CEO, TREASURER & CHAIRMAN. Mitchell Saltz was the former
Treasurer and Chief Financial Officer of Mezzenine Capital, Ltd., (MEZZ), a
publicly held Bermuda closed-end investment holding company, from 1994-1998.
Mezzanine specializes in equity investments, bridge financing, and
investment-banking services to publicly traded companies. Mr. Saltz performed
all corporate accounting functions, cash-flow management, investment strategy,
tax planning, mergers and acquisitions analysis, and portfolio management of the
cash and marketable securities held by Mezzanine. From 1990-1994, Mr. Saltz
headed the financial advisory board of Western Omni Trust, an international
investment banking company specializing in initial public stock offerings, asset
management and international tax strategies. Mr. Saltz was the founder and
former President of Business Information Systems, Inc., a data processing firm
specializing in computerized accounting and income tax services for more than
fifteen years. Clients included national CPA firms and Fortune 500 companies.
Mr. Saltz received his BA in accounting from Cleveland State University in 1974.
Mr. Saltz also serves on the board of Oasis, a non-profit organization
developing an amusement park for physically challenged children.
ROBERT L. SCOTT - PRESIDENT, COO & DIRECTOR. Mr. Scott spent a decade at Smith
& Wesson, one of the nation's leading gun manufacturers. He joined the
Hartford-based company in 1989 as Vice President of Sales and Marketing, and
served as Smith & Wesson's Vice President for Business Development. While Vice
President of Sales and Marketing, Mr. Scott oversaw the gun company's worldwide
sales and marketing efforts.
Mr. Scott brings a wealth of knowledge about the firearms and sporting
industries as well as extensive marketing experience to Saf-T-Hammer, having
spent some 20 years in the business of marketing consumer products. Prior to
joining Smith & Wesson, Scott directed sales operations for a number of national
consumer goods companies, including Miami-based Tasco Sales, Inc. and Berkley &
Company, based in Iowa.
Mr. Scott served as Vice Chairman of the Hunting and Shooting Sports Heritage
Foundation, was on the Board of Governors of the National Shooting Sports
Foundation, and on the Executive Committee of the Sporting Arms and Ammunition
Manufacturers' Institute. A graduate of Ohio University in Athens, Ohio, Mr.
Scott earned a B.A. in Political Science with a Minor in Management in 1969.
SHERRY NOREEN - SECRETARY & DIRECTOR Ms. Noreen graduated with honors from
Michigan State University and applied her education and training by helping to
sell technological communications networks for such industry leaders as AT&T,
Michigan Bell/Ameritech and US West. Her titles ranged from Major Market
Account Executive to Strategic Account Manager in which she managed a team of 20
sales and technical engineers and was responsible for 18 million dollars in
annual sales revenues.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than ten percent of a
registered class of the Company's equity securities to file with the SEC initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, directors and greater than ten
percent shareholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file. To the Company's knowledge, based
solely on the review of copies of such reports furnished to the Company and
written representations that no other reports were required, the Company has
been informed that some of the Company's officers, directors and greater than
ten percent shareholders did not timely file their required forms but have
otherwise complied with the requirements of Section 16(A).
ITEM 10. EXECUTIVE COMPENSATION
The Company does not have employment contracts with any of its management
personnel.
12
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation information for
services rendered in all capacities for the fiscal years ended December 31,
2000, 1999, and 1998. Other than as set forth herein, no executive officer's
salary and bonus exceeded $100,000 in any of the applicable years. The following
information includes the dollar value of base salaries, bonus awards, the number
of stock options granted and certain other compensation, if any, whether paid or
deferred.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------- AWARDS PAYOUTS
-------------------------------
OTHER RESTRICTED SECURITIES ALL
NAME AND ANNUAL STOCK UNDERLYING LTIP OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPESATION
POSITION YEAR ($) ($) ($) ($) SARS (#) ($) ($)
- ---------------- -------- ------------ -------- ------------- ---------- ----------- --------- -----------
Mitchell Saltz
(CEO) 2000 240,000 -0- -0- -0- -0- -0- -0-
1999 28,000 -0- -0- -0- -0- -0- -0-
1998 -0- -0- -0- -0- -0- -0- -0-
Robert L. Scott
(President) 2000 240,000 -0- -0- 54,000 -0- -0- -0-
1999 20,000 -0- -0- -0- -0- -0- -0-
1998 -0- -0- -0- -0- -0- -0- -0-
Sherry Noreen
(Secretary) 2000 -0- -0- -0- -0- -0- -0- -0-
1999 -0- -0- -0- -0- -0- -0- -0-
1998 -0- -0- -0- -0- -0- -0- -0-
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS/SAR'S GRANTED
UNDERLYING TO EMPLOYEES IN FISCAL EXERCISE OF BASE PRICE
NAME OPTIONS/SAR'S GRANTED (#) YEAR ($/SH) EXPIRATION DATE
- ----------------- ------------------------- ----------------------- ------------------------ ---------------
Mitchell A. Saltz None N/A N/A N/A
Robert L. Scott None N/A N/A N/A
Sherry Noreen None N/A N/A N/A
13
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN
SECURITIES UNDERLYING THE-MONEY OPTION/SARS
SHARES ACQUIRED ON VALUE OPTIONS/SARS AT FY-END (#) AT FY-END ($)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ----------------- ---------------------- ------------------------ -------------------------- --------------------------
Mitchell A. Saltz N/A N/A NONE N/A
Robert L. Scott N/A N/A NONE N/A
Sherry Noreen N/A N/A NONE N/A
COMPENSATION OF DIRECTORS
Directors were not separately compensated for their services in the year
ended December 31, 2000.
14
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 28, 2001, certain
information with respect to the Company's equity securities owned of record or
beneficially by (i) each Officer and Director of the Company; (ii) each person
who owns beneficially more than 5% of each class of the Company's outstanding
equity securities; and (iii) all Directors and Executive Officers as a group.
COMMON STOCK PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER(1) OUTSTANDING OUTSTANDING
Common Stock Mitchell A. Saltz 3,300,000 21.9%
Common Stock Sherry Noreen 275,000 1.8%
Common Stock Robert Scott 300,000 2.0%
Common Stock All Executive Officers and
Directors as a Group
(3 persons) 3,875,000 25.7%
(1) The address for each of these shareholders is c/o Saf-T-Hammer
Corporation, 14500 N. Northsight Boulevard, Suite 221, Scottsdale, Arizona
85260. Each person has sole voting and dispositive power with respect to all
outstanding shares.
The Company believes that the beneficial owners of securities listed above,
based on information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws where
applicable. Beneficial ownership is determined in accordance with the rules of
the Commission and generally includes voting or investment power with respect to
securities. Shares of stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for purposes
of computing the percentage of the person holding such options or warrants, but
are not deemed outstanding for purposes of computing the percentage of any other
person.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 30, 1999, the Company entered into a loan agreement with
Mitchell Saltz, the Company's Chief Executive Officer, Treasurer, and Chairman
of the Board. Pursuant to the terms of the loan agreement, the loan bears
interest at 10% per annum on the average balance outstanding, is unsecured and
due on September 30, 2002. Interest payments are due on January 15th and July
15th. In the event that the Company fails to make timely interest payments with
90 days from its due date, the balance owed becomes payable on demand. As of
December 31, 2000, the Company owed $240,000 under this note agreement.
Subsequent to December 31, 2000, the Company borrowed an additional $80,000.
In December 2000, the Company authorized the issuance of 300,000 shares of
its restricted Common Stock to Robert Scott, President, as a bonus and payment
for services rendered. Compensation expense of $54,000 has been recorded, which
was calculated at a 20% discount of the trading price of the underlying stock.
15
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
INDEX TO FINANCIAL STATEMENTS Page
Report of Independent Auditors F-1
Consolidated balance sheet at December 31, 2000 F-2
Consolidated statements of operations for the years ended
December 31, 2000 and 1999 F-3
Consolidated statements of cash flows for the years ended
December 31, 2000 and 1999 F-4
Consolidated statements of shareholders' equity for the
years ended December 31, 2000 and 1999 F-5
Notes to consolidated financial statements F-6
All other schedules are omitted as the required information is not present or is
not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the financial statements or
notes thereto.
INDEX TO EXHIBITS
The Company undertakes to furnish to any shareholder so requesting a copy
of any of the following exhibits upon payment to the Company of the reasonable
costs incurred by the Company in furnishing any such exhibit.
EXHIBIT NO. DESCRIPTION
*3.1 Articles of Incorporation of the Company
*3.2 Articles of Amendment of the Company changing Company's name to
Saf-T-Hammer Corporation
*3.3 Bylaws of the Company
21.1 List of Subsidiaries
- ------------------------------
* Previously filed
REPORTS ON FORM 8-K
There were no Reports on Form 8-K filed during the fourth quarter of the
fiscal year ended December 31, 2000.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 30, 2001
SAF-T-HAMMER CORPORATION
(Registrant)
By: /s/ Mitchell A. Saltz
Mitchell A. Saltz
Chief Executive Officer & Treasurer
By: /s/ Robert Scott
Robert Scott
President
By: /s/ Sherry Noreen
Sherry Noreen
Secretary
Pursuant to requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated:
Signature Capacity Date
- --------- -------- ----
Director March 30, 2001
/s/ Mitchell A. Saltz
Mitchell A. Saltz
Director March 30, 2001
/s/ Robert Scott
Robert Scott
Director March 30, 2001
/s/ Sherry Noreen
Sherry Noreen
17
INDEPENDENT AUDITORS' REPORT
Board of Directors
Saf-T-Hammer Corporation
Scottsdale, Arizona
We have audited the accompanying consolidated balance sheet of Saf-T-Hammer
Corporation, (a development stage enterprise) as of December 31, 2000, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years then ended and for the period since inception to
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Saf-T-Hammer Corporation as of December 31, 2000, and the results of its
operations and its cash flows for each of the two years then ended and for the
period since inception to December 31, 2000 in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the financial
statements, the Company has incurred net losses from operations, has negative
cash flows from operations, and has a net capital deficiency. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
March 20, 2001
F-1
SAF-T-HAMMER CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET - DECEMBER 31, 2000
ASSETS
CURRENT ASSETS:
Cash $ 83,121
Other current assets 15,184
-----------
Total current assets $ 98,305
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $21,012 34,232
OTHER ASSETS:
Goodwill, net of amortization of $32,814 404,686
Deposits 5,372
-----------
Total other assets 410,058
-----------
$ 542,595
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES -
accrued expenses $ 121,114
3% CONVERTIBLE NOTE PAYABLE, due March 28, 2002 and
unsecured, net of unamortized discount of $18,300 140,700
10% LOANS PAYABLE, RELATED PARTIES, due on
September 30, 2002 and unsecured 597,425
STOCKHOLDERS' DEFICIT:
Common stock; $0.001 par value, 100,000,000 shares
authorized, 15,051,805 shares issued and outstanding $ 12,921
Additional paid-in capital 3,650,463
Deficit accumulated during development stage (3,980,028)
-----------
Total stockholders' deficit (316,644)
-----------
$ 542,595
===========
See accompanying independent auditors' report and notes to consolidated
financial statements.
F-2
SAF-T-HAMMER CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
From inception
Year ended Year ended to
December 31, 2000 December 31,1999 December 31, 2000
------------------- ----------------- -----------------
REVENUES $ 13,367 $ - $ 13,367
COST OF REVENUES 5,347 - 5,347
------------------- ----------------- -----------------
GROSS PROFIT 8,020 - 8,020
------------------- ----------------- -----------------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 2,550,090 1,243,040 3,988,048
------------------- ----------------- -----------------
NET LOSS $ (2,542,070) $ (1,243,040) $ (3,980,028)
=================== ================= =================
NET LOSS PER SHARE, basic and diluted $ (0.23) (0.15)
=================== =================
WEIGHTED AVERAGE SHARES OUTSTANDING,
basic and diluted 11,021,937 8,426,412
=================== =================
See accompanying independent auditors' report and notes to consolidated
financial statements.
F-3
SAF-T-HAMMER CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Additional Total
Common stock paid-in Accumulated stockholders'
Shares Amount capital deficit deficit
------- ------- --------- --------- ---------
Balance at January 1, 1998 (post
4:1 stock split) 2,131,152 $ - $ - $ - $ -
Capital contribution into
Saf-T-Hammer, Inc. (pre-reverse
merger) by shareholders - - 104,546 - 104,546
New common stock shares issued
per reverse merger agreement
on October 20, 1998 (post
4:1 stock split) 5,325,000 5,325 (5,325) - -
Net loss for the year ended
December 31, 1998 (194,918) (194,918)
--------- ------- --------- ----------- ---------
Balance at December 31, 1998 7,456,152 5,325 99,221 (194,918) (90,372)
Issuance of common stock during
private placement, net 985,000 985 843,140 844,125
Issuance of common stock for
services rendered 137,458 137 137,321 137,458
Net loss for the year ended
December 31, 1999 (1,243,040) (1,243,040)
--------- ------- --------- ----------- ---------
Balance at December 31, 1999 8,578,610 6,447 1,079,682 (1,437,958) (351,829)
Shares issued related to acquisition
of Lost Coast Ventures, Inc. 450,000 450 337,050 337,500
Issuance of common stock during
private placement, net 773,037 773 666,752 667,525
Convertibility feature of debentures
issued 118,280 118,280
Conversion debt 2,651,658 2,652 838,348 841,000
Issuance of common stock during
private placement, net 1,600,000 1,600 198,400 200,000
Shares issued in exchange for
services 998,500 999 411,951 412,950
Net loss for the year ended
December 31, 2000 (2,542,070) (2,542,070)
--------- ------- --------- ----------- ---------
Balance at December 31, 2000 15,051,805 $ 12,921 $ 3,650,463 $(3,980,028) $ (316,644)
========= ======= ========= =========== =========
See accompanying independent auditors' report and notes to consolidated
financial statements.
F-4
SAF-T-HAMMER CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
From inception on
Year ended Year ended December 18, 1992 to
December 31, 2000 December 31,1999 December 31, 2000
------------------ ----------------- ---------------------
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net loss $ (2,542,070) $ (1,243,040) $ (3,980,028)
------------------ ----------------- ---------------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 44,538 7,740 53,826
Capital contribution - product development 74,046
Stock compensation for services rendered 412,950 137,458 550,408
Interest 282,978 282,978
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS -
Deposits (5,372) (5,372)
Prepaid expense (15,184) (15,184)
INCREASE (DECREASE) IN LIABILITIES -
accrued expenses 87,075 10,732 121,116
------------------ ----------------- ---------------------
Total adjustments 806,985 155,930 1,061,818
------------------ ----------------- ---------------------
Net cash used for operating activities (1,735,085) (1,087,110) (2,918,210)
------------------ ----------------- ---------------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Payments to acquire Lost Coast Ventures, Inc. (100,000) (100,000)
Payments to acquire property and equipment (24,744) (24,744)
------------------ ----------------- ---------------------
Net cash used for investing activities (124,744) (124,744)
------------------ ----------------- ---------------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds from loans payable, related parties 352,425 340,000 822,925
Payments on loans payable, related parties (95,000) (130,500) (225,500)
Proceeds from issuance of convertible debentures 950,000 950,000
Payments on debt issue costs (133,000) (133,000)
Proceeds from issuance of common stock, net 867,525 844,125 1,711,650
------------------ ----------------- ---------------------
Net cash provided by financing activities 1,941,950 1,053,625 3,126,075
================== ================= =====================
NET CHANGE IN CASH 82,121 (33,485) 83,121
CASH, beginning of year/period 1,000 34,485 -
------------------ ----------------- ---------------------
CASH, end of year/period $ 83,121 $ 1,000 $ 83,121
================== ================= =====================
See accompanying independent auditors' report and notes to consolidated
financial statements.
F-5
SAF-T-HAMMER CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
From inception on
Year ended Year ended December 18, 1992 to
December 31, 2000 December 31,1999 December 31, 2000
----------------- ----------------- ---------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING AND INVESTING ACTIVITIES:
Issuance of common stock during reverse
merger $ - $ - $ 74,046
----------------- ----------------- ---------------------
Contribution of property and equipment $ - $ - $ 30,500
----------------- ----------------- ---------------------
Issuance of stock for services $ 412,950 $ 137,458 $ 550,408
----------------- ----------------- ---------------------
Acquisition of Lost Coast Ventures, Inc. $ 337,500 $ - $ 337,500
----------------- ----------------- ---------------------
Conversion of debt $ 841,000 $ - $ 841,000
----------------- ----------------- ---------------------
Convertibility feature related to debentures
issued $ 118,280 $ - $ 118,280
----------------- ----------------- ---------------------
See accompanying independent auditors' report and notes to consolidated
financial statements.
F-6
SAF-T-HAMMER CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
(1) ORGANIZATION AND BUSINESS ACTIVITY:
Prior to incorporation as Saf-T-Hammer Corporation in 1998, the Company existed
as De Oro Mines, Inc. De Oro Mines, Inc. was incorporated on June 17, 1991 in
the State of Nevada. Its original Articles of Incorporation provided for
1,000,000 shares of common stock with a par value of $0.01 per share.
On August 15, 1996, the shareholders of the Company authorized the
recapitalization of the Company and the amendment of its Articles of
Incorporation to allow the corporation to issue up to 100,000,000 shares of a
single class of Common Stock with a par value of $0.001. The amended Articles
were duly adopted as stated and were filed on October 16, 1996 with the State of
Nevada. From its inception, De Oro Mines, Inc. was in the development stage and
was primarily engaged in the business of developing mining properties. During
1992, De Oro lost its remaining assets and settled its liabilities, and from
that date forward remained dormant.
Effective October 20, 1998, the Company acquired the assets of Saf-T-Hammer,
Inc. and changed its name from De Oro Mines, Inc. to Saf-T-Hammer Corporation.
The acquisition was accounted for under the purchase method. Prior to this
agreement becoming effective, De Oro Mines, Inc. had a total of 532,788 shares
of common stock issued and outstanding. Pursuant to the Asset Acquisition
Agreement, the Company issued 1,331,250 shares of common stock to Saf-T-Hammer,
Inc., which then resulted in a total of 1,864,038 shares of common stock being
issued and outstanding.
Pursuant to Accounting Principles Board Opinion No. 16, "Accounting for Business
Combinations," Saf-T-Hammer, Inc. was the acquirer and De Oro Mines, Inc., the
acquiree, and accordingly, this transaction was accounted for as a reverse
merger since effective control of the Company was with the officer/shareholders
of Saf-T-Hammer, Inc. The shareholders also approved a four share for one share
stock split. The financial statements as of December 31, 1999 and 1998 reflect
the effect of the four to one stock split. The majority of the shareholders of
both corporations approved this asset purchase agreement and related bill of
sale.
The primary asset of Saf-T-Hammer Corporation is a childproof gun safety device
that the Company plans to manufacture and sell throughout the world. Currently,
the Company is in the product development stage and has a patent pending for
rights to the childproof gun safety device.
See accompanying independent auditors' report.
F-7
SAF-T-HAMMER CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(1) ORGANIZATION AND BUSINESS ACTIVITY, CONTINUED:
ACQUISITION OF LOST COAST VENTURES, INC.:
On March 31, 2000, the Company entered into a Stock Exchange Agreement with MRC
Legal Services LLC to acquire 800,000 shares (approximately 80%) of Lost Coast
Ventures, Inc., a Delaware Corporation, in exchange for 200,000 shares of its
restricted common stock. Pursuant to this Stock Exchange Agreement, immediately
following the close of this Agreement, the shareholders caused Lost Coast
Ventures, Inc. to complete a reverse stock split and acquire the remaining 20%
of outstanding shares of Lost Coast Ventures, Inc. for nominal cash. In
relation to the Stock Exchange Agreement with MRC Legal Services LLC, the
Company also entered into a consulting agreement to negotiate and close the
Agreement with certain individuals. Pursuant to this Agreement, the Company
payed $100,000 cash and issued 250,000 shares of its common stock immediately
upon the execution of the stock exchange with the Lost Coast shareholders. This
business combination was accounted using the purchase method of accounting and
accordingly, the purchase price ($437,500) in excess of the fair value of the
assets acquired and liabilities assumed has been recorded as goodwill on the
accompanying balance sheet. Proforma operating results as if the acquisition
had occurred at the beginning of the earliest period presented is not presented
as the amounts are not material. The management of the Company will amortize
the goodwill straight line over the estimated useful life of 10 years.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION:
The accompanying financial statements include the accounts of Saf-T-Hammer
Corporation and Lost Coast Ventures, IncAll significant intercompany accounts
and transactions have been eliminated in consolidation.
CASH:
Equivalents
For purposes of the statement of cash flows, cash equivalents include all highly
liquid debt instruments with original maturities of three months or less which
are not securing any corporate obligations.
See accompanying independent auditors' report.
F-8
SAF-T-HAMMER CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
CASH, CONTINUED:
Concentration
The Company maintains its cash in bank deposit accounts, which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.
FAIR VALUE:
Unless otherwise indicated, the fair values of all reported assets and
liabilities, which represent financial instruments, none of which are held for
trading purposes, approximate the carrying values of such amounts.
NEW ACCOUNTING PRONOUNCEMENTS:
In December 1999, the Securities and Exchange Commission (the Commission) issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements,
which is to be applied beginning with the fourth fiscal quarter of fiscal years
beginning after December 15, 1999, to provide guidance related to recognizing
revenue in circumstances in which no specific authoritative literature exists.
The adoption by the Company in the application of the Staff Accounting Bulletin
to the Company's financial statements did not have a material change in the
amount of revenues the Company ultimately realized.
In March 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44 (Interpretation 44), "Accounting for Certain Transactions
Involving Stock Compensation". Interpretation 44 provides criteria for the
recognition of compensation expense in certain stock-based compensation
arrangements that are accounted for under APB Opinion No. 25, Accounting for
Stock-Based Compensation. Interpretation 44 is effective July 1, 2000, with
certain provisions that are effective retroactively to December 15, 1998 and
January 12, 2000. Interpretation 44 did not have any material impact on the
Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133,
as amended by SFAS No. 137, is effective for fiscal years beginning after June
15, 2000. SFAS No. 133 requires the Company to recognize all derivatives as
either assets or liabilities and measure those instruments at fair value. It
further provides criteria for derivative instruments to be designated as fair
value, cash flow and foreign currency hedges and establishes respective
accounting standards for reporting changes in the fair value of the derivative
instruments. Upon adoption, the Company will be required to adjust hedging
instruments to fair value in the balance sheet and recognize the offsetting
gains or losses as adjustments to be reported in net income or other
comprehensive income, as appropriate. The Company is evaluating its expected
adoption date and currently expects to comply with the requirements of SFAS 133
in fiscal year 2001. The Company does not expect the adoption will be material
to the Company's financial position or results of operations since the Company
does not believe it participates in such activities.
See accompanying independent auditors' report.
F-9
SAF-T-HAMMER CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF:
The Company uses the provision of FASB No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", whichrequires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amounts of the assets exceed the fair values of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this statement did not have
a material impact on the Company's financial position, results of operations or
liquidity.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to earnings as incurred, whereas, additions, renewals, and
betterments are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts, and any gain or loss is included in operations.
Depreciation is computed using the straight-line method over the estimated
useful lives of 3-5 years.
COMPREHENSIVE INCOME:
The Company does not have other comprehensive income. Comprehensive loss
consists of net loss from operations.
GOING CONCERN:
The Company's consolidated financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. Without realization of additional capital, it would be unlikely for
the Company to continue as a going concern. This factor raises substantial
doubt about the Company's ability to continue as a going concern.
Management recognizes that the Company must generate additional resources to
enable it to continue operations. The Company intends to begin recognizing
significant revenues during year 2001. Management's plans also include the sale
of additional equity securities and debt financing from related parties.
However, no assurance can be given that the Company will be successful in
raising additional capital.
Further, there can be no assurance, assuming the Company successfully raises
additional equity and debt financing, that the Company will achieve
profitability or positive cash flow. If management is unable to raise
additional capital and expected significant revenues do not result in positive
cash flow to meet its obligations, the Company's ability to continue as a going
concern will become substantially doubtful.
See accompanying independent auditors' report.
F-10
SAF-T-HAMMER CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(3) INCOME TAXES:
Income taxes are provided for using the liability method of accounting in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." A deferred tax asset or liability is recorded
for all temporary differences between financial and tax reporting. Deferred tax
expense (benefit) results from the net change during the year of deferred tax
assets and liabilities. There is no provision for income taxes for the year
ended December 31, 2000, due to the net losses. The Company's total deferred
tax asset as of December 31, 2000 is as follows:
Net operating loss carryforwards $ (3,650,000)
Effective tax rates 40%
----------------
1,460,000
Valuation allowance (1,460,000)
----------------
Net deferred taxes $ -
================
The federal net operating loss carryforward will expire in various amounts
starting in 2018. This carryforward may be limited upon the consummation of a
business combination under IRC Section 381.
(4) CONVERTIBLE 3% NOTE PAYABLE:
During March 2000, the Company entered into an agreement to issue 3% convertible
debentures with a face value of $1,000,000 under Rule 504 of Regulation D. The
debentures are convertible into common stock at the discretion of the holder at
75% of the average common stock bid price for the 5 days preceding the date of
conversion. Net proceeds of $ 950,000 from this offering were received in May
2000. As of December 31, 2000, $841,000 of the debentures have been converted
into 2,651,658 restricted common shares of the Company. Upon issuance, the
Company recorded interest expense of $118,280, based upon a calculated amount of
the five preceding days stock prices, in accordance with guidance under Emerging
Issues Task Force ("EITF") 98-5: Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios.
Pursuant to this EITF, the beneficial conversion feature of $118,280 is
calculated at its intrinsic value at the commitment date and charged to expense
at the date of issuance inasmuch as the debentures are immediately convertible
into equity. The Company also paid debt issue costs of $133,000, of which,
$114,700 has been charged to interest expense using the interest method
(effective interest rate of 31%) as of December 31, 2000. As of March 20, 2001,
the remaining $159,000 was converted into 1,799,029 restricted common shares of
the Company.
(5) LOANS PAYABLE, RELATED PARTIES:
Loans payable, stockholder, bears interest at 10% per annum on the average
balance outstanding, is unsecured and due on September 30, 2002. Pursuant to
the terms of this loan agreement, the Company may borrow, through September 30,
2000, up to a limit of $500,000 for use in the Company's normal course of
business. Pursuant to the terms of this agreement dated September 30, 1999,
interest payments are due on January 15th and July 15th. In the event that the
Company fails to make timely interest payments within 90 days from its due date,
the loans become payable on demand. As of December 31, 2000, the Company owed
$357,425 under this loan agreement.
See accompanying independent auditors' report.
F-11
SAF-T-HAMMER CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(5) LOANS PAYABLE, RELATED PARTIES, CONTINUED:
Loan payable, officer-stockholder, bears interest at 10% per annum on the
average balance outstanding, is unsecured and due on September 30, 2002.
Pursuant to the terms of this agreement dated September 30, 1999, interest
payments are due on January 15th and July 15th. In the event that the Company
fails to make timely interest payments with 90 days from its due date, the
balance owed becomes payable on demand. As of December 31, 2000, the Company
owed $240,000 under this note agreement. Subsequent to December 31, 2000, the
Company borrowed an additional $80,000.
Total interest expense under all obligations for the years ended December 31,
2000 and 1999 amounted to $329,855 and $3,000, respectively.
(6) STOCKHOLDERS' DEFICIT:
Prior to October 20, 1998, Saf-T-Hammer Corporation (Formerly De Oro Mines,
Inc.) had a total of 532,788 (pre-split) shares of common stock issued and
outstanding.
On October 20, 1998, pursuant to an Asset Acquisition Agreement, the Company
issued 1,331,250 (pre-split) shares of common stock to Saf-T-Hammer, Inc., which
then resulted in a total of 1,864,038 (pre-split) shares of common stock being
issued and outstanding. Pursuant to Accounting Principles Board Opinion No. 16,
"Accounting for Business Combinations," Saf-T-Hammer, Inc. was the acquirer and
De Oro Mines, Inc., the acquiree, and accordingly, this transaction was
accounted for as a reverse merger since effective control of the Company was
with the officer/shareholders of Saf-T-Hammer, Inc.
Immediately following the Asset Acquisition Agreement and issuance of 1,331,250
(pre-split) shares, the Company forward split its common stock at 4:1 shares,
resulting in 7,456,152 shares being issued and outstanding. The Company then
changed its name from De Oro Mines, Inc. to Saf-T-Hammer Corporation.
During the first quarter of 1999, the Company commenced a private placement of
1,000,000 shares of its restricted common shares at an offering price of $1.00
per share. As of December 31, 1999, the Company raised approximately $844,000,
which is net of offering costs of approximately $70,000.
During the year ended December 31, 1999, the Company issued 137,458 (post-split)
shares of its restricted common stock. Accordingly, the Company recorded
compensation expense for service of $137,458 during the year.
See accompanying independent auditors' report.
F-12
SAF-T-HAMMER CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(6) STOCKHOLDERS' DEFICIT, CONTINUED:
During March 2000, the Company entered into a Stock Exchange Agreement with MRC
Legal Services LLC to acquire 800,000 shares (approximately 80%) of Lost Coast
Ventures, Inc., a Delaware Corporation, in exchange for 200,000 shares of its
restricted common stock. Pursuant to this Stock Exchange Agreement, immediately
following the close of this Agreement, the shareholders caused Lost Coast
Ventures, Inc. to complete a reverse stock split and acquire the remaining 20%
of outstanding shares of Lost Coast Ventures, Inc. for cash. In relation to the
Stock Exchange Agreement with MRC Legal Services LLC, the Company also entered
into a consulting agreement to negotiate and close the Agreement with certain
individuals. Pursuant to this Agreement, the Company paid $100,000 cash and
issued 250,000 shares of its common stock immediately upon the execution of the
stock exchange with the Lost Coast shareholders. Total consideration for these
transactions were recorded at $437,500.
In March 2000, the Company issued convertible debentures with a face value of
$1,000,000 under Rule 504 of Regulation D. The debentures are convertible into
common stock at the discretion of the holder at a 25% discount off of the
trading price. As of December 31, 2000, $841,000 of the Debentures have been
converted into 2,651,658 shares of common stock at an average price of $0.317
per share. During January 2001, the remaining $159,000 of the Debentures were
converted into 1,799,029 shares of common stock at an average price of $0.09 per
share.
In May 2000, the Company issued 310,500 shares of its restricted Common Stock to
key consultants in exchange for services rendered. Compensation expense of
$155,250 has been recorded, which was calculated at a 20% discount of the
trading price of the underlying stock.
In May 2000, the Company initiated a Private Placement of $1,250,000 of its
restricted Common Stock. The Company sold a total of 773,037 shares resulting
in net proceeds of $667,525. This offering was closed in June 2000.
In July 2000, the Company issued 7,500 shares of its restricted common stock to
its legal counsel, an accredited investor, in exchange for legal services
rendered. In addition, in September 2000, the Company issued 380,500 shares of
its restricted Common Stock to key consultants in exchange for services
rendered. Compensation expense of $203,700 has been recorded, which was
calculated at a 20% discount of the trading price of the underlying stock.
In November 2000, the Company conducted a Private Placement of $200,000 of its
restricted Common Stock. The Company sold a total of 1,600,000 shares resulting
in net proceeds of $200,000.
In December 2000, the Company authorized the issuance of 300,000 shares of its
restricted Common Stock to an officer as a bonus and payment for services
rendered. Compensation expense of $54,000 has been recorded, which was
calculated at a 20% discount of the trading price of the underlying stock.
See accompanying independent auditors' report.
F-13
SAF-T-HAMMER CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(7) COMMITMENTS:
The Company entered into a three year lease for its office facility from
unrelated parties effective April 1, 2000. Monthly rent is payable on the first
day of the month in the amount of $5,622. Pursuant to this agreement, the
Company is not responsible for any other local or state taxes or CAM charges,
however, is required to have a minimum general liability insurance of
$1,000,000.
See accompanying independent auditors' report.
F-14
SAF-T-HAMMER CORPORATION
SUBSIDIARIES OF THE REGISTRANT
Percentage
of voting
State or other jurisdiction of securities
Name incorporation or organization owned
- ------- ----------------------------------- ------------
Lost Coast Ventures, Inc. Nevada 100%